What is car depreciation?
Car depreciation is the difference between a vehicle’s purchase price and its resale value. Unless the car is a collector’s item—say, a classic car—its resale value will decline over time. (A car’s value can go up, but this is very, very rare. Remember the pandemic-related car shortage of 2021?!)
Understanding how fast a vehicle depreciates and why can help you pick one that’s more likely to retain value over time.
How quickly does a car lose value?
Brand-new vehicles lose more value in their first year of ownership than in any other year after, starting as soon as you drive it out of the dealership. Why? People are willing to pay a premium for a new car. Once it’s been “used” at all, it becomes less valuable and attractive to a potential buyer. Unless the value drops significantly, there would be no benefit to buying a slightly used vehicle rather than spending a bit more to get a brand new one. Plus, newer models keep coming out, so the desirability of your car—and its value—will decline.
The table below shows how quickly a new $35,000 vehicle, such as a Subaru Outback, is likely to depreciate over the first five years. The rate of depreciation will vary by model. To find yours, search online for the make and model plus the word “depreciation,” or get an estimate of your car’s resale value on Canadian Black Book. More on this below, under “How to calculate depreciation and set a price.”
Time | Depreciation rate | Car value |
Brand-new Subaru Outback | n/a | $35,000 |
End of year one | 22% ($7,700) | $27,300 |
End of year two | 9.5% ($10,293.50) | $24,706.50 |
End of year three | 9.5% ($12,640.62) | $22,359.38 |
End of year four | 9.5% ($14,764.76) | $20,235.24 |
End of year five | 9.5% ($16,687.11) | $18,312.89 |
Cars depreciate by 50% somewhere between turning three and four years old. That’s why three years marks a significant point in car ownership. Depreciation is the largest single expense of owning a new vehicle—more so than other average lifetime ownership expenditures such as insurance, regular maintenance and gas.
What causes a car to depreciate?
Multiple factors contribute to depreciation in both new and used cars. These factors may be brand- or model-specific, and others apply to all vehicles. For example, luxury models often lose some value due to reduced popularity over time, whereas the resale values of all makes and models are affected by issues related to their age and condition. On the other hand, a cheap commuter car could lose its value much faster, depending on the mileage and what types of roads it’s driven on.
If you’re planning to sell your car as used at the two- to three-year mark, knowing what causes a drop in value over time can help you set a competitive asking price.
Causes of depreciation for new and used cars
1. The kilometres on the dial
In Canada, car drivers average about 16,000 clicks per year. When you put your car up for sale, buyers will note the age of the vehicle and the number on its odometer. If your average annual mileage is significantly higher than 16,000 kilometres, that will suggest to buyers that your vehicle will need imminent maintenance, affecting the sale price. (Something to note if you’re in the market to buy a used car, too.)